Risk-Based Review
Related terms
Category
Financial Reporting
Risk-based review is a reconciliation review methodology that allocates reviewer time and scrutiny based on the assessed risk of each account rather than reviewing all reconciliations with equal depth. Accounts with higher risk profiles, larger balances, greater complexity, or lower confidence scores receive more thorough review, while low-risk accounts receive streamlined oversight.
Why it matters
The traditional approach to reconciliation review is to examine every reconciliation in the queue with roughly equal attention. In a close cycle with 300 reconciliations, a reviewer might have a few minutes per reconciliation, far too little for complex accounts and more than necessary for simple ones. This uniform approach misallocates reviewer capacity because it treats a zero-balance clearing account the same as a multi-million-dollar revenue accrual with multiple manual adjustments.
Risk-based review addresses this by categorizing reconciliations into risk tiers and defining different review procedures for each tier. High-risk accounts might require full transaction-level review, verification of source documents, and detailed testing of reconciling items. Medium-risk accounts might need balance-level review with selective transaction testing. Low-risk accounts might require only a cursory check that the reconciliation was prepared and that no unexpected variances exist.
The challenge with risk-based review has historically been the assessment step. Determining which accounts are high-risk requires analyzing multiple factors including balance size, variance history, preparer experience, account complexity, and the nature of underlying transactions. Performing this assessment manually for hundreds of accounts each period is itself a significant time investment, which is why many organizations default to the simpler but less effective uniform review approach.
AI confidence scoring makes risk-based review practical by analyzing multiple factors to assign each reconciliation a quantitative risk score, replacing subjective judgment with data-driven prioritization.
How Arvexi handles this
Arvexi Cortex automates the risk assessment that enables effective risk-based review. The confidence scoring system evaluates every reconciliation across five factors and assigns a score that directly maps to review priority. Reviewers see their queue sorted by risk, with the lowest-confidence reconciliations at the top and specific areas of concern highlighted for each one.
High-confidence reconciliations can be routed to auto-reconciliation for automatic certification, eliminating reviewer involvement entirely. Medium-confidence accounts follow the standard preparer-reviewer workflow with the AI investigation agent providing analysis notes to accelerate the review. Low-confidence accounts receive enhanced review treatment with full work paper scrutiny and mandatory documentation of the reviewer's assessment. This tiered approach ensures that reviewer expertise is concentrated where it creates the most value.